Accounts Receivable Audit: Analysis, Study, and Recommendations

Assignment 2
Name of the Student
Name of the Course
Name of the University
1 TABLE OF CONTENTS
2 Introduction.........................................................................................................................2
3 Analysis and Study.............................................................................................................2
3.1 Receivable Audit.........................................................................................................2
3.2 Sample Size of Population...........................................................................................3
3.3 Performance of Audit Procedures...............................................................................4
3.4 ANALYSIS OF EXCEPTIONS IN CONFIRMATION OF ACCOUNTS
RECEIVABLE.......................................................................................................................5
3.5 Journal Entries for the Correction in the given format................................................6
3.6 Results of Accounts Receivable – Fairness of the Act................................................7
4 Summary, Conclusion and Recommendations...................................................................9
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2 INTRODUCTION
Accounts receivable is considered to be one of the immensely pertinent areas in a company’s
accounts. These are asserted importance of such level owing to the rationale that these are the
revenue that is to be received by the company at the expected time and amounts that was
agreed between the parties at the time of the sales transactions. When there arises a delay in
these payments then this would ultimately reflect upon the short term as well as the long term
cash flow of the economic entity respectively.
3 ANALYSIS AND STUDY
3.1 RECEIVABLE AUDIT
The starting point of the receivables audit would be the tracing of the receivable report
to the register. The period-end accounts receivable aging report would be used to check
the total with the grand total of the outstanding that has been depicted in the ledger.
These totals however need not match under all conditions as there might be a balancing
entry at some part that might be aiding the accounts to be balanced in an accurate fashion
respectively. The invoices those are present as the supporting documents with respect to
the receivables / sales outstanding would be added up to substantiate the accounts
receivable aging report , so as to ensure that the amount represented in the general ledger
is well supported with grass root level documents. After the regular documentation has
been perused and a reliable opinion pertaining to the control systems those operate
within the company has been established in a concrete manner, the reconciliations are
carried out. The journal entries those are pertaining to the accounts receivable account
which is a part of that general ledger, will be verified for quantity and substance. Any
entry that do not corroborate with the evidence that backs the same would be perused
further for legitimacy respectively.
Then the sampling and survey as well as the external confirmation related procedures are
commenced. These would start with a sample population being selected from the
invoices those are a part of the receivable report. The sampling process starts when the
auditors select some invoices pertaining to accounts receivable aging report for
comparison in terms of the existence of the byer, the amount of sale, date of the
respective sale and the like. Thereafter these invoices would also be verified for the
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stock movements wherein the team would match invoice dates to the goods outward
which is given as part of the shipping log, ensuring apt accounting period being followed
along with apt releases with respect to quantity and date. Prior period invoices are
located at this date. A sample of buyers is drawn as the next logical progression of this
particular process. In this particular stage the samples are drawn from the closing
balance of the receivables from the general ledger and a confirmation report is sent out
to the sample debtors / buyers. These are then verified for accuracy and other details
contained in them.
The company that would be audited as a part of this case study would be Brant Animal
Hospital Professional Corporation’s and the accounts receivable part would be intersected
receptively. The processes would be followed based on the related Canadian standards and
the procedural guidelines offered by the case study.
3.2 SAMPLE SIZE OF POPULATION
A) Sample size of a population needs to be complaint with certain basic requirements to be
considered sufficient to represent the underlying population. In the resent case the population
the samples selected by Rose for the existence and cut off of the accounts needs to be such
that it could offer considerable assurance related to the accuracy of the accounting procedures
and approval processes those are in place as well as operational in the present economic
entity.
A) CAS 530 deals with sampling in case of the companies those have been established within
the geographical territory of Canada. Accordingly the following steps would be used to take a
sample size.
Particular USD
Total of Receivables
787707.
5
Total Overdue above 60 Days
84867.3
2
Percentage of Population
Represented 0.10774
Value of 30 - 60 Days 210313.
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5
Percentage of Population
Represented
0.26699
4
Since there is no explicit mention in the case as to the number of credit days of the company,
all balances standing above 60 days have been considered for account based audit owing to
the criticality and the nature of these moving soon into the bad / doubtful debts category
respectively. This the first estimation of the sample population with rationale.
The tolerable deviation rate is as follows
Particular USD
Estimated Error 31500
Tainting for Error 100%
Tolerable Misstatement 70000
Book Value of Population
787707.
5
Tolerable Deviation Rate
8.88654
7
B)
3.3 PERFORMANCE OF AUDIT PROCEDURES
The Audit procedures that would be followed in this case would be as follows. The samples
chose for study would be analysed with respect to the transactions those form part of the
accounts receivable in those particular accounts respectively. There after these would be
analysed for the actual occurrence of the transactions along with the values those have been
recorded for those transactions. These are then cross verified along with the
There are a number of occasions when the company decides to write off certain
receivable to be uncollectable and hence absorbs it as a loss / expense in the profit and
loss account. This is an immensely tricky area as a number of writer off have been later
been unearthed to be collectible debt or related party movement of funds. Hence an audit
of these balances would be based on a comparison with the method used in the previous
year. Another particular area that might demand a lot of attention would be that of credit
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